End of Bretton Woods and Beginning of Globalisation


 
 
Concept Explanation
 

End of Bretton Woods and Beginning of Globalisation

End of Bretton Woods and the Beginning of 'Globalisation': From the 1960s, the rising cost of US's overseas involvements weakened its finances and competitive strength. The US dollar could not maintain its value in relation to gold. This eventually led to the collapse of the system of fixed exchange rates and the introduction of a system of floating exchange rates. 

Change in International Financial System: From the mid-1970s, the international financial system changed. The developing countries were then forced to borrow from Western commercial banks and private lending institutions This led to periodic debt crises, lower incomes and increased poverty in Africa and Latin America.The industrial world was also hit by unemployment between the mid-1970s to the early 1990s. From the late 1970s, MNCS also began to shift production operations to low wage Asian countries.

 

New Economic Policy in China: China had been cut off from the post  war world economy since its revolution in 1949. But new economic policies in China and the collapse of the Soviet Union and Soviet style communism in Eastern Europe brought many countries back into the fold of the world economy. Wages were relatively low in countries like China.

Thus, China became a favourite destination for investment by foreign MNCS competing to capture world markets. In the last two decades, the world's economic geography has changed a lot as countries like China, India and Brazil have achieved rapid economic development. 

 

#Exchange Rates :-  they link national currencies for purposes of international trade . there are broadly two kinds of exchange rates :-  Fixed exchange rates and floating exchange rates . 

  • Fixed exchange rates :-  when exchange rates are fixed and governments intervene to prevent movements in them . 
  • Flexible or floating exchange rate - These rates fluctuate depending on demand and supply of currencies in foreign exchange markets , in principle without interference by governments . 
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